Within the next 12 months, the retail banking sector is set to become increasingly competitive. With Tesco, Virgin Money and the Post Office expected to launch into the current account arena, current providers are getting jittery. And so they should.
Not only are these companies known for being easy on a thrifty consumer's purse, they also seem to have a vague understanding of customer service. As a customer of my (unnamed) bank, I can honestly say that I sometimes wish my bank manager would greet me with the middle finger before dispatching me with a swift kick in the rear. Anything would be better than the surly unhelpfulness and general confusion caused by its myriad of call centres. At least by taking the former approach, I would know exactly where I stood and could take appropriate action. Instead, I am treated to a theatrical display of West End proportions whereby the bank and its dastardly minions of doom go through the pretence of caring.
What they need is more competition. It's a sign of a healthy market place and hopefully the newcomers will focus their attention more on actually viewing customers as a help as opposed to a hindrance.
SI
Wednesday, August 4, 2010
Wednesday, July 28, 2010
Testing times
Last Friday the Committee of European Banking regulators (CEBS) published the long awaited results of its stress tests into the region's leading financial institutions. The tests revealed that seven of the 91 European banks had failed to meet the capital requirements.
Even before the test results were published, many market commentators had concluded that the tests were pointless and unlikely to achieve very much. The whole endeavour was not exactly helped by CEBS' website failing its own stress test and crashing just as the results were published. Who said the Europeans can't do irony?
Many critics have pointed to the low capital ratio required to pass the tests and the fact that all the tests relied on data supplied by the banks and verified by their local regulator. Grave uncertainty has also arisen surrounding the consistency of the methodology - with implementation of the scenarios depending to some degree on the local regulatory authorities. It has also been hard for analysts to ignore the fact that the criteria were not only less onerous than testing already conducted by some regulators, but also than some of the banks' internal worst-case forecasts. So, the 'adverse' scenario is not really all that adverse: it assumes only a slight output contraction and market losses on government debt, but no actual sovereign default scenario.
However, the fact that investors still seemingly mistrust capital adequacy rules and that these tests have been branded by many as neither uniform, transparent nor stressful enough, may ultimately not matter that much. The clearest sign that the tests have set the European banking industry on the path to recovery will be seen in interbank lending and the capital markets – if these do not improve then Europe will have to think again.
SS
Even before the test results were published, many market commentators had concluded that the tests were pointless and unlikely to achieve very much. The whole endeavour was not exactly helped by CEBS' website failing its own stress test and crashing just as the results were published. Who said the Europeans can't do irony?
Many critics have pointed to the low capital ratio required to pass the tests and the fact that all the tests relied on data supplied by the banks and verified by their local regulator. Grave uncertainty has also arisen surrounding the consistency of the methodology - with implementation of the scenarios depending to some degree on the local regulatory authorities. It has also been hard for analysts to ignore the fact that the criteria were not only less onerous than testing already conducted by some regulators, but also than some of the banks' internal worst-case forecasts. So, the 'adverse' scenario is not really all that adverse: it assumes only a slight output contraction and market losses on government debt, but no actual sovereign default scenario.
However, the fact that investors still seemingly mistrust capital adequacy rules and that these tests have been branded by many as neither uniform, transparent nor stressful enough, may ultimately not matter that much. The clearest sign that the tests have set the European banking industry on the path to recovery will be seen in interbank lending and the capital markets – if these do not improve then Europe will have to think again.
SS
Monday, July 26, 2010
Three barrels full – BP
The latest furore which has spouted forth from the well that is the BP PR machine is going to take just as long to clean up as the black mucky mess which continues to wash up onto the shores of the Gulf of Mexico. The three doctored images which were uploaded onto BP's Gulf of Mexico response homepage this week have arguably caused more damage than some of the many other gaffes that have dogged BP's PR efforts since the first announcement of the oil spill in May.
In fact, BP has single handedly violated almost every rule of successful public relations, starting with the first one, which is to 'tell it all and tell it first', they then quickly broke the second which is to 'allow only the well trained and polished spokespeople speak to the media and public'. The problem is not that there are mistakes and crises (there always will be and there is no way around this – especially with something as hazardous as deep-water drilling). However, not all crises have to mean job losses, careers ruined, staff illness, environments destroyed and international condemnation. The problem in BP's case is the challenges came from the poor handling of communications from the start, which are in essence, self inflicted wounds which have continued to cause injury long after they've been made. PR in this instance seems to have been used as a band-aid rather than a tool for getting the right messages out to the right audiences in a clear and simple manner. Public relations isn't about exaggeration and manipulation, it's about communicating the public what is going on within a company in a controlled manner.
As a result, BP is now fighting a PR firestorm on all fronts, from peeved shareholders, to the outraged local community who have had their livelihoods put on hold and in danger, to the US government, to vocal national and international environmental groups and to employees and health and safety unions. They are also fighting fires from the inside, trying to manage and keep a lid on its internal communication channels (including the management of some of its renegade spokespeople). This includes its (current) Chief Executive, Tony Hayward, who bemoaned recently, 'I want my life back' – hardly the positive PR message that BP is trying to communicate to the world audience who is watching the disaster with the grim fascination of a car wreck they can't tear their eyes away from. In fact, it must feel like a touch of déjà vu for BP's head of communications Andrew Gowers, former editor of the FT and also the man who incidentally manned the PR at Lehmans Brothers during their collapse.
The images, which have sparked the increase in criticism, include the cut and paste doctoring of two images of the Houston control room where BP staff are monitoring the leak and one from inside a helicopter over the Gulf. It's called into question one of the consistent messages BP has been trying to drum home – transparency. Many are now jumping on BP's alleged lack of transparency as an attempt to continue to manipulate versions of the truth months on from the initial disaster. BP has since now gone on the front foot to post both original and fake versions of the photos on flickr which hasn't appeared to lessen the condemnation any further.
Perhaps the lesson or message that is most important to members of the UK financial services industry is that no one is immune. But regardless of the type of incident, if PR is used well and effectively, the damage can be limited. For as long as most can remember BP has always been viewed as an untouchable financial giant with most of the media coverage largely centring on its share prices and presence as a an international conglomerate. It has now suddenly and spectacularly spiralled into a reputational death spin which could only be described as a PR director's worst nightmare and has seen nearly every aspect of its business criticised on the back of a protracted and seriously damaging oil leak at one of its facilities in American waters.
BP is to up their neck in this mess and there's no telling where the next gaffe or possible reprieve will come from. The only part which is clear is that somewhere along the way PR policy got put at the bottom of the to-do list.
JH
In fact, BP has single handedly violated almost every rule of successful public relations, starting with the first one, which is to 'tell it all and tell it first', they then quickly broke the second which is to 'allow only the well trained and polished spokespeople speak to the media and public'. The problem is not that there are mistakes and crises (there always will be and there is no way around this – especially with something as hazardous as deep-water drilling). However, not all crises have to mean job losses, careers ruined, staff illness, environments destroyed and international condemnation. The problem in BP's case is the challenges came from the poor handling of communications from the start, which are in essence, self inflicted wounds which have continued to cause injury long after they've been made. PR in this instance seems to have been used as a band-aid rather than a tool for getting the right messages out to the right audiences in a clear and simple manner. Public relations isn't about exaggeration and manipulation, it's about communicating the public what is going on within a company in a controlled manner.
As a result, BP is now fighting a PR firestorm on all fronts, from peeved shareholders, to the outraged local community who have had their livelihoods put on hold and in danger, to the US government, to vocal national and international environmental groups and to employees and health and safety unions. They are also fighting fires from the inside, trying to manage and keep a lid on its internal communication channels (including the management of some of its renegade spokespeople). This includes its (current) Chief Executive, Tony Hayward, who bemoaned recently, 'I want my life back' – hardly the positive PR message that BP is trying to communicate to the world audience who is watching the disaster with the grim fascination of a car wreck they can't tear their eyes away from. In fact, it must feel like a touch of déjà vu for BP's head of communications Andrew Gowers, former editor of the FT and also the man who incidentally manned the PR at Lehmans Brothers during their collapse.
The images, which have sparked the increase in criticism, include the cut and paste doctoring of two images of the Houston control room where BP staff are monitoring the leak and one from inside a helicopter over the Gulf. It's called into question one of the consistent messages BP has been trying to drum home – transparency. Many are now jumping on BP's alleged lack of transparency as an attempt to continue to manipulate versions of the truth months on from the initial disaster. BP has since now gone on the front foot to post both original and fake versions of the photos on flickr which hasn't appeared to lessen the condemnation any further.
Perhaps the lesson or message that is most important to members of the UK financial services industry is that no one is immune. But regardless of the type of incident, if PR is used well and effectively, the damage can be limited. For as long as most can remember BP has always been viewed as an untouchable financial giant with most of the media coverage largely centring on its share prices and presence as a an international conglomerate. It has now suddenly and spectacularly spiralled into a reputational death spin which could only be described as a PR director's worst nightmare and has seen nearly every aspect of its business criticised on the back of a protracted and seriously damaging oil leak at one of its facilities in American waters.
BP is to up their neck in this mess and there's no telling where the next gaffe or possible reprieve will come from. The only part which is clear is that somewhere along the way PR policy got put at the bottom of the to-do list.
JH
Friday, July 16, 2010
AIFM – a ticking time bomb?
For some in the investment industry the Alternative Investment Fund Managers (AIFM) directive is just another layer of unnecessary legislation clogging up the headlines. However, for a large portion of fund managers and investors this directive could have destructive effects on the way they conduct their business.
The directive effectively aims to establish a regulatory framework for managers of collective investment undertakings which will facilitate monitoring and supervision of systemic risk, increase disclosure and transparency and enhance investor protection. The proposal was introduced on the 29th of April 2009 by the European Commission and came to life through a disturbingly short consultation period. Viewing it as rushed and ill-prepared, the chairwoman elect of the European Private Equity & Venture Capital Association commented that it "will crush venture and other sources of innovation capital". Sadly, venture capital is not the only victim of this directive; increased costs and a reduction in choice and scope of investments will have a far reaching impact. The IMA's Jarkko Syyrila said that "Anyone who has savings, anyone who has invested in a fund, an investment trust, a real-estate fund, everyone who has a pension in Europe – a Greek or German pension fund – will be negatively impacted by this directive."
Commission figures suggest that in the EU alone around 30% of hedge fund managers, managing almost 90% of assets of EU-domiciled hedge funds, will be affected by the directive. However, repercussions are not limited to the EU. Tim Geithner, US Treasury Secretary, stated that the directive could cause "a transatlantic rift" by discriminating against US firms and denying them access to the European market. The US wrote the book on reactionary and protectionist policy, so perhaps the rift that's already well oiled at the moment, will have a direct impact. If Europe legislates first then some feel the US will not exactly be backward in coming forward with their own legislation. Tit for tat.
The directive's progress has been anything but smooth with a litany of delays, postponements, criticisms and antagonism from major influencing parties and institutions along the way. With over 1000 amendments at one point, the directive was eventually passed in May and will be put to a final vote by the European Parliament in the coming months – providing no further postponements.
Jean-Paul Gauzes, the French MEP and AIFM champion, recently replied to the exhaustive criticisms: "I know that most of private equity and hedge funds are perfectly respectable, but there have been some problems, such as in Germany where companies were bought and broken up, which have been very traumatic". I have to admit I'm not entirely convinced by his argument to potentially destroy an industry that last year, in the UK alone, generated over £60bn in tax revenues – perhaps events will turn out to be a little more than traumatic this time.
LB & AVD
The directive effectively aims to establish a regulatory framework for managers of collective investment undertakings which will facilitate monitoring and supervision of systemic risk, increase disclosure and transparency and enhance investor protection. The proposal was introduced on the 29th of April 2009 by the European Commission and came to life through a disturbingly short consultation period. Viewing it as rushed and ill-prepared, the chairwoman elect of the European Private Equity & Venture Capital Association commented that it "will crush venture and other sources of innovation capital". Sadly, venture capital is not the only victim of this directive; increased costs and a reduction in choice and scope of investments will have a far reaching impact. The IMA's Jarkko Syyrila said that "Anyone who has savings, anyone who has invested in a fund, an investment trust, a real-estate fund, everyone who has a pension in Europe – a Greek or German pension fund – will be negatively impacted by this directive."
Commission figures suggest that in the EU alone around 30% of hedge fund managers, managing almost 90% of assets of EU-domiciled hedge funds, will be affected by the directive. However, repercussions are not limited to the EU. Tim Geithner, US Treasury Secretary, stated that the directive could cause "a transatlantic rift" by discriminating against US firms and denying them access to the European market. The US wrote the book on reactionary and protectionist policy, so perhaps the rift that's already well oiled at the moment, will have a direct impact. If Europe legislates first then some feel the US will not exactly be backward in coming forward with their own legislation. Tit for tat.
The directive's progress has been anything but smooth with a litany of delays, postponements, criticisms and antagonism from major influencing parties and institutions along the way. With over 1000 amendments at one point, the directive was eventually passed in May and will be put to a final vote by the European Parliament in the coming months – providing no further postponements.
Jean-Paul Gauzes, the French MEP and AIFM champion, recently replied to the exhaustive criticisms: "I know that most of private equity and hedge funds are perfectly respectable, but there have been some problems, such as in Germany where companies were bought and broken up, which have been very traumatic". I have to admit I'm not entirely convinced by his argument to potentially destroy an industry that last year, in the UK alone, generated over £60bn in tax revenues – perhaps events will turn out to be a little more than traumatic this time.
LB & AVD
Wednesday, June 30, 2010
Is social media really worth it?
Undoubtedly, social media is increasingly seen as a useful additional PR, advertising and sales channel. In 2010, for the first time in 25 years, Pepsi didn't run a Super Bowl ad in 2010, but focussed on a $20 million online Cause Marketing campaign instead. Dell has reported it generated $6.5 million of sales over Twitter, Sony Vaio's Twitter account has generated over $1 million in sales, and Blendtec's YouTube campaign led to a five-fold increase in sales.
With social media activities starting to pay off for corporates (after all, they're free), they also become more attractive for investors. Paul David Hewson (better known as U2.0's Bono) and his private equity firm Elevation Partners have just acquired 5 million shares in Facebook for $120m, following the purchase of 2.5m shares for $90m in November 2009. Until now, private investors have pumped more than $830 million into Facebook which is by far outperforming Zynga (the Farmville game maker who has recently seen another funding of $147 million, bringing total funding to $360 million), Twitter ($160 million) and LinkedIn ($103 million).
Looking at current market evaluations, these investments make perfect sense: Facebook is valued at $14 billion, Zynga $2.6 billion, Twitter $1.5 billion and LinkedIn $1.3 billion. Estimated advertising revenues for Facebook in 2010 are within the region of $1.1 billion to $2 billion. Twitter (so far) makes money by partnering with Google and Microsoft, and is currently testing advertising options. The value of Twitter is now estimated at more than $1.5bn (it was already valued at more than $1bn before it had generated any revenues at all).
So the answer to the question seems to be a straightforward yes. Social media does make money and people do like Facebook & Co. Investors do invest and do make money too, and the market valuations are reasonable, given the platforms do the right things and do things right. The poster announcing the movie about Facebook sums up the current climate of self-confidence: you don't get to 500 million friends without making some enemies. If "some enemies" become "many" because of an overload of commercialisation or privacy concerns however, there might still be trouble ahead.
RR
With social media activities starting to pay off for corporates (after all, they're free), they also become more attractive for investors. Paul David Hewson (better known as U2.0's Bono) and his private equity firm Elevation Partners have just acquired 5 million shares in Facebook for $120m, following the purchase of 2.5m shares for $90m in November 2009. Until now, private investors have pumped more than $830 million into Facebook which is by far outperforming Zynga (the Farmville game maker who has recently seen another funding of $147 million, bringing total funding to $360 million), Twitter ($160 million) and LinkedIn ($103 million).
Looking at current market evaluations, these investments make perfect sense: Facebook is valued at $14 billion, Zynga $2.6 billion, Twitter $1.5 billion and LinkedIn $1.3 billion. Estimated advertising revenues for Facebook in 2010 are within the region of $1.1 billion to $2 billion. Twitter (so far) makes money by partnering with Google and Microsoft, and is currently testing advertising options. The value of Twitter is now estimated at more than $1.5bn (it was already valued at more than $1bn before it had generated any revenues at all).
So the answer to the question seems to be a straightforward yes. Social media does make money and people do like Facebook & Co. Investors do invest and do make money too, and the market valuations are reasonable, given the platforms do the right things and do things right. The poster announcing the movie about Facebook sums up the current climate of self-confidence: you don't get to 500 million friends without making some enemies. If "some enemies" become "many" because of an overload of commercialisation or privacy concerns however, there might still be trouble ahead.
RR
Monday, June 28, 2010
The Coalition's Cuts Are Now Upon Us
After all the talk, the Chancellor's much anticipated deficit-busting budget is finally upon us. Mr Osborne termed it "tough but fair" but many might not subscribe to his verdict.
For those in the public sector, it's unpleasant. A two year pay freeze, essentially a pay cut (as Mr Cameron himself confessed), a smaller pension pot and the potential for further job cuts.
A recent Policy Exchange report revealed that on average those in the public sector spend nine fewer years at work over their lifetime and earn 30 per cent more than their private sector brethren. Despite these generous benefits – or perhaps because of them – productivity in the public sector has fallen over the past 10 years, while productivity increased in the private sector 28 per cent. Surely it's about time the gold plated public sector pensions were abolished and pay came in line with the private sector? On the subject of pay, the Policy Exchange report found that median gross pay is £22,417 in the public sector and £19,932 in the private sector.
A problem is that without public sector jobs, unemployment will obviously rise and thereby leave those in work to foot the bill – unless the Tories' plan for the private sector to increase employment is successful…I guess that is a story yet to be told.
The private sector has perhaps fared slightly better, with the eradication of the tax on jobs proposed by Labour and the national insurance threshold being raised making it cheaper for companies to employ staff. That said, it was a surprise that capital gains came down under a Labour government and perhaps more surprising that the Conservatives have increased it.
What surprises me most is the uproar of furious liberal democrat supporters over the VAT increase. It is true that Nick Clegg campaigned against it, however there is one thing that needs to be remembered – it is a Conservative led government and Mr Clegg was never going to get his way on everything. And, is being £33 a year worse off on average really worth splitting hairs about?
RS
For those in the public sector, it's unpleasant. A two year pay freeze, essentially a pay cut (as Mr Cameron himself confessed), a smaller pension pot and the potential for further job cuts.
A recent Policy Exchange report revealed that on average those in the public sector spend nine fewer years at work over their lifetime and earn 30 per cent more than their private sector brethren. Despite these generous benefits – or perhaps because of them – productivity in the public sector has fallen over the past 10 years, while productivity increased in the private sector 28 per cent. Surely it's about time the gold plated public sector pensions were abolished and pay came in line with the private sector? On the subject of pay, the Policy Exchange report found that median gross pay is £22,417 in the public sector and £19,932 in the private sector.
A problem is that without public sector jobs, unemployment will obviously rise and thereby leave those in work to foot the bill – unless the Tories' plan for the private sector to increase employment is successful…I guess that is a story yet to be told.
The private sector has perhaps fared slightly better, with the eradication of the tax on jobs proposed by Labour and the national insurance threshold being raised making it cheaper for companies to employ staff. That said, it was a surprise that capital gains came down under a Labour government and perhaps more surprising that the Conservatives have increased it.
What surprises me most is the uproar of furious liberal democrat supporters over the VAT increase. It is true that Nick Clegg campaigned against it, however there is one thing that needs to be remembered – it is a Conservative led government and Mr Clegg was never going to get his way on everything. And, is being £33 a year worse off on average really worth splitting hairs about?
RS
To cut or not to cut?
One of the most interesting aspects of last week's Budget was the divide in the press reaction. Edmund Conway writing for the Daily Telegraph said "this was – in both senses of the word – one of the most "courageous" Budgets in living memory" before going on to argue that the extent of cuts to public spending further needed is likely to test the Government to its limit. While Polly Toynbee, who David Cameron famously said he wanted the Conservative party to be more like, writing in the Guardian, said of the Budget and its central aim; "there was no necessity to create a surplus in six years, returning to depression economics with mortal risk of sinking the country into second recession or slump."
Okay so these are only two viewpoints. And yes, they're from two of the most diametrically opposed national newspapers in regards to political leaning. Yet, after twenty five years of broad ideological consensus between the main parties, the budgetary deficit we are now facing appears to be creating some clear divides in Britain's political class. The coalition government believes in the need to slash the budget and raise taxes while the Labour Party, and whoever is chosen to lead it, argue that it is important not to slash governmental spending to drastically in the midst of a recession.
Are we seeing a return to ideological politics? Are the Government's and the Labour opposition's disparity motivated by some genuine difference of opinion as to how to solve the economic crisis? Probably not, and to this extent most interesting is the response of Vince Cable, who over two months ago was against budgetary cuts but now is regularly reeled out in front of the TV cameras to justify them. Mr Cable argues that he has grave concerns that if Britain didn't start cutting today, we would be tomorrow's Greece. Whether this is correct or not is debatable. However, what is clear is that Mr Cable now believes that cuts are necessary to ensure that foreign investors who own pounds (principally emerging market central banks, who own the vast majority) don't lose confidence in Britain. It is pure political pragmatism.
So are we returning to ideological politics and does it even matter? It probably doesn't matter as even though the majority of voters, those who voted for Labour and the Liberal Democrats, were against cutting before the election, the cuts remain. This begs the question, in a global market economy, is a country's destiny no longer shaped by its own people but rather the views of outside investors, and if so what does this mean - not only for our political parties but also for the sovereignty of the nation state. "To cut or not to cut", is no longer a question for the electorate but rather the wider global economy. It's interesting in this context to refer back to comments made back in February by the then shadow Chancellor, George Osborne, warning that significant early cuts were the only way to preserve Britain's economic sovereignty.
JCL
Okay so these are only two viewpoints. And yes, they're from two of the most diametrically opposed national newspapers in regards to political leaning. Yet, after twenty five years of broad ideological consensus between the main parties, the budgetary deficit we are now facing appears to be creating some clear divides in Britain's political class. The coalition government believes in the need to slash the budget and raise taxes while the Labour Party, and whoever is chosen to lead it, argue that it is important not to slash governmental spending to drastically in the midst of a recession.
Are we seeing a return to ideological politics? Are the Government's and the Labour opposition's disparity motivated by some genuine difference of opinion as to how to solve the economic crisis? Probably not, and to this extent most interesting is the response of Vince Cable, who over two months ago was against budgetary cuts but now is regularly reeled out in front of the TV cameras to justify them. Mr Cable argues that he has grave concerns that if Britain didn't start cutting today, we would be tomorrow's Greece. Whether this is correct or not is debatable. However, what is clear is that Mr Cable now believes that cuts are necessary to ensure that foreign investors who own pounds (principally emerging market central banks, who own the vast majority) don't lose confidence in Britain. It is pure political pragmatism.
So are we returning to ideological politics and does it even matter? It probably doesn't matter as even though the majority of voters, those who voted for Labour and the Liberal Democrats, were against cutting before the election, the cuts remain. This begs the question, in a global market economy, is a country's destiny no longer shaped by its own people but rather the views of outside investors, and if so what does this mean - not only for our political parties but also for the sovereignty of the nation state. "To cut or not to cut", is no longer a question for the electorate but rather the wider global economy. It's interesting in this context to refer back to comments made back in February by the then shadow Chancellor, George Osborne, warning that significant early cuts were the only way to preserve Britain's economic sovereignty.
JCL
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